US and China Strike TikTok Deal in Madrid: Licensing the Algorithm, Not Selling It

Madrid, Spain – September 17, 2025 – After two days of intense negotiations in Madrid, the United States and China have reached a framework agreement on the future of TikTok, averting a looming ban deadline and marking a rare breakthrough in bilateral tensions. The deal, which sidesteps a full divestiture of the app's U.S. operations, centers on ByteDance licensing its proprietary recommendation algorithm to a new American-controlled entity, while retaining ownership of the core intellectual property. This compromise allows both sides to claim victory: Washington gains oversight of U.S. user data, while Beijing safeguards its technological edge.

US and China Strike TikTok Deal in Madrid: Licensing the Algorithm, Not Selling It The agreement comes just hours before the September 17 deadline for ByteDance to sell TikTok's American arm or face a nationwide shutdown, a deadline President Donald Trump has extended three times since taking office in January. U.S. Treasury Secretary Scott Bessent, who led the talks alongside Trade Representative Jamieson Greer, announced the framework on Monday, crediting the pressure of the impending cutoff for spurring progress.

"It's between two private parties, but the commercial terms have been agreed upon," Bessent said, noting that Trump and Chinese President Xi Jinping would finalize details in a Friday call. Chinese negotiator Li Chenggang echoed the sentiment, emphasizing that the resolution promotes "cooperation, reduces investment barriers, and advances economic ties" without compromising Beijing's principles or corporate interests.

US and China Strike TikTok Deal in Madrid: Licensing the Algorithm, Not Selling It Under the deal, ByteDance will license the algorithm — widely regarded as the "secret sauce" behind TikTok's addictive feed — to a newly formed U.S. company backed by American investors.

This entity will handle operations for U.S. users, training the licensed algorithm exclusively on domestic data to address national security concerns about potential Chinese surveillance or content manipulation.

Oracle, which has stored TikTok's U.S. data since 2022, will retain a minority stake and continue managing servers, ensuring compliance with data localization rules. Sources familiar with the talks indicate the investor consortium includes prominent firms such as Andreessen Horowitz, General Atlantic, Susquehanna International Group, and KKR, alongside existing non-Chinese ByteDance stakeholders.

ByteDance's ownership in the new firm will be capped below 20%, satisfying the letter of U.S. law while avoiding a outright handover of the algorithm.

The structure has drawn sharp criticism from hawks in Trump's own party, who argue it falls short of the "divestiture" mandated by the 2024 Protecting Americans from Foreign Adversary Controlled Applications Act, signed by President Joe Biden and upheld by the Supreme Court.

US and China Strike TikTok Deal in Madrid: Licensing the Algorithm, Not Selling It The law requires severing "any operational relationship" with ByteDance, including algorithm cooperation, but grants the president broad discretion to define a "full sale." A U.S. adviser close to the negotiations quipped to the Financial Times that this outcome exemplifies a "TACO trade" — a Wall Street acronym for "Trump Always Chickens Out," coined earlier this year to mock the administration's pattern of tariff threats followed by delays or dilutions. Despite initial vows to ban the app during his first term, Trump has repeatedly postponed enforcement, citing market disruptions and his own popularity on the platform among young voters.

From Beijing's perspective, the emphasis is unequivocal: this is licensing, not transfer. Wang Jingtao, deputy director of China's Cyberspace Administration, clarified during a Madrid press briefing that the deal involves "authorization of intellectual property rights such as the algorithm," with ByteDance entrusting U.S. data operations to American hands.

A People's Daily editorial hailed it as a "win-win," underscoring that China will rigorously review any technology exports under its export control laws. This stance aligns with Beijing's long-held position that the algorithm, a cornerstone of its AI ambitions, is non-negotiable for sale— a red line that derailed prior bids from Microsoft and a Walmart-Oracle consortium in 2020.

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For TikTok's 170 million U.S. users, the immediate relief is palpable: no ban, seamless continuity, and enhanced privacy safeguards. Yet the deal exposes deeper fault lines in U.S.-China tech rivalry. Critics, including the House Select Committee on China, warn that licensing could leave a backdoor for influence, potentially allowing ByteDance to update or monitor the algorithm remotely. "It wouldn’t be in compliance if the algorithm is Chinese," a committee spokesperson insisted. Supporters counter that it balances security with innovation, preserving the app's cultural phenomenon status without crippling ByteDance, now one of China's largest AI players.

As Trump prepares for his call with Xi, the framework — extendable by 90 days if needed — signals a pragmatic thaw in trade talks overshadowed by tariffs and export curbs. Both capitals can tout success: Washington formalizes control over a national security flashpoint, while Peking retains its tech sovereignty. But with congressional scrutiny looming and the deadline now pushed to December 16, the "TACO trade" moniker may yet haunt the White House if the full terms falter under legal or political fire.